Borrowers urged to avoid costly fixed home loan revert rate trap

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There’s been a substantial home loan rate shift in 2020 as interest rates have continued to fall and fixed home loans have emerged as the new low rate option for borrowers.

Mozo database figures show that, on average, fixed home loan rates are now significantly lower than variable rates, with the average 2-year fixed rate (2.35%) for an owner-occupier nearly 100 basis points lower than the average variable rate (3.31%).

In fact, following the latest Reserve Bank rate cut, many lenders have cut their fixed headline rates below the 2.00% mark for the first time.

While these low fixed offers will no doubt be welcomed by any borrowers who are happy to lock in a rate for the next few years, mortgage holders are being warned to watch out for the devil in the detail: revert rates

What is a revert rate? It’s the variable rate borrowers are charged once the fixed rate period ends and, importantly, it tends to be a much higher rate.

And according to a recent Mozo analysis, the difference between fixed rates and revert rates can be substantial. Of the 2-year fixed rate loans being tracked in the Mozo database, the average revert rate was 3.49% and rates ranged as high as 5.10%.

“It’s clear lenders lure customers in with rock bottom fixed rates knowing they will make a bonanza in a couple of years time as most people won't bother to switch,” says Mozo Director, Kirsty Lamont.

“While low fixed rate offers might seem intoxicating, not many customers would be prepared for the fact they could be slugged with rates up to 5.10% when the fixed period ends.”

2-year fixed rate loans with the lowest total interest over 30 years^

Home loan2-year fixed rateRevert rateTotal interest over 30 years
Well Home Loans - Well Balanced Fixed1.99% (2.17% comparison rate*)2.17%$142,976
Tic:Toc - Fixed Home Loan1.89% (2.15% comparison rate*)2.19%$143,366
FreedomLend - Fixed Home Loan2.31% (2.46% comparison rate*)2.19%$147,105
Pacific Mortgage Group - Fixed Home Loan2.14% (2.24% comparison rate*)2.25%$149,452
Illawarra Credit Union - The Works Fixed Home Loan Special Offer1.99% (2.93% comparison rate*)2.50%$164,357

As the table above shows though, not all lenders charge revert rates which are significantly higher than the fixed rate.

But given that another analysis found that just 6% of mortgage holders had refinanced in the 12 months to June 2020, it’s likely that many Australians who do take up a fixed rate offer will be caught out in years to come when higher revert rates kick in.

As Lamont says, that inertia could end up costing borrowers a significant amount.

“The message is clear, if you don’t switch your loan when the fixed period ends you’re on a collision course with the revert rate ripoff. Failing to refinance your loan at the end of the fixed period could see your monthly repayments jump from $1,568 to $2,010 adding more than $88,997 over the life of the loan.”

RELATED: Home loan rates starting with ‘1’ pile up after RBA cut

Ready to compare a range of competitive fixed rate home loan offers? Check out the rates in the table below or head on over to the Mozo home loan comparison hub to compare more options for both owner occupiers and investors.

^Based on home loan products in the Mozo database available to owner-occupiers making principal and interest repayments on a loan of $400,000 loan with an LVR of 80% - accurate as of Nov 20, 2020. Assumes variable revert rate remains consistent over 30 years.

Home loan comparisons on Mozo

Mozo may receive payment if you click the products below. We don’t compare the entire market, but you can search our database of 473 home loans.
Last updated 21 June 2024 Important disclosures and comparison rate warning*
  • Fixed Rate Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <80%
    Interest rate
    6.09 % p.a.
    Fixed 3 years
    Comparison rate
    6.15 % p.a.
    Initial monthly repayment
    $3,027

    Additional repayments of up to $10K per fixed year. Interest rate discounts available. Waiver of $499 application fee when combined with an Orange Advantage Home Loan.

  • Basic Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR<70%
    Interest rate
    6.25 % p.a.
    Fixed 3 years
    Comparison rate
    6.20 % p.a.
    Initial monthly repayment
    $3,079
    Go to site

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

  • Offset Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR <70%
    Interest rate
    6.25 % p.a.
    Fixed 3 years
    Comparison rate
    6.42 % p.a.
    Initial monthly repayment
    $3,079
    Go to site

  • Fixed Rate

    • Owner Occupier
    • Principal & Interest
    • <80% LVR
    Interest rate
    6.59 % p.a.
    Fixed 3 years
    Comparison rate
    7.06 % p.a.
    Initial monthly repayment
    $3,190

    Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.